Industry sunk costs and entry dynamics

Andrew Wait () and Vladimir Smirnov

Economics Bulletin, 2004, vol. 12, issue 4, 1-7

Abstract: We explore an investment game where industry sunk costs provide anincentive for a firm to be a follower into the market as opposedto a leader. For some parameter values, every firm could have adominant strategy to wait, even though immediate entry is sociallyoptimal - this is a like prisoners' dilemma. In equilibrium, afirm is more likely to have a dominant strategy to wait with anincrease in the number of potential entrants. Finally, theequilibrium can display an entry cascade.

Keywords: coordination; game (search for similar items in EconPapers)
JEL-codes: C7 L1 (search for similar items in EconPapers)
Date: 2004-06-04
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